A recent bout of public protests revealed an undercurrent of popular discontent that has caused discomfort within the autocratic regime headed by President Nursultan Nazarbayev, who responded with a government reshuffle in September that he hopes will help to calm the public mood and may also provide some clues as to his current thinking on the topic of lining up a successor. Prime Minister Karim Massimov was replaced by Bakytzhan Sagimtayev, and put in charge of the KNB security services, where he will be responsible for managing the threats posed by public unrest and home-grown Islamist extremism. Unlike Massimov, the new prime minister is not a close associate of the president, and his role will likely amount to faithfully executing Nazarbayev’s orders.

One personnel change that has potentially interesting longer-term implications is the promotion of Defense Minister Imanghali Tasmaghambetov to the post of deputy prime minister. Tasmaghambetov served as prime minister in 2002-2003, but resigned after discovering that a positive vote of confidence in his government had been falsified, an act that elevated his standing among the public. That factor, along with his wealth of experience, could make him an attractive choice to succeed the president.

Of more immediate concern for investors, the government’s ambitious privatization program is proceeding at a very slow pace. Of the 172 companies that are categorized as small or medium-sized “non-core operations,” only 34 had been sold by Samruk-Kazyna, the sovereign wealth fund, as of early September. To be fair, the timetable for completion of the privatization program extends to 2020, and many of the firms are inefficient (the result of limited competition) and/or require restructuring.

Larger firms slated for sale in 2018 to 2020, include a small stake in Air Astana, as well as 25% shareholdings in other plum assets, such as KazPost, Kazakhtelecom, Kazatomprom (nuclear energy), and Kazakhstan Temir Zholy (railways). However, a recent push by state-owned KazMunaiGaz to buy out minority shareholders of its British subsidiary at a below-market price may give some potential investors pause, fearing that the same could happen to investors holding shares acquired through the privatization process. More generally, such actions could undermine the confidence that will be required to attract non-oil investment as part of a program of economic diversification.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. For more information on The PRS Group and its wide range of risk products, go to: www.prsgroup.com or contact Michael Burke, Director of Client Relations at (315) 431-0511, extension 311